On Nov 27, we issued an updated research report on ACE Limited ACE.
ACE Limited’s operating earnings per share in the third quarter were in line with the Zacks Consensus Estimate. The company witnessed lower premiums earned and investment income on the one hand, and record underwriting income with improvement in combined ratio on the other.
With respect to the surprise trend, this Zacks Rank #2 (Buy) property and casualty insurer has outperformed expectations in three of the last four quarters, with an average beat of 3.52%.
ACE Limited boasts an impressive inorganic growth story. The buyout of Siam Commercial Samaggi Insurance PCL in Thailand, ItaúSeguros SA in Brazil, Fireman’s Fund in the U.S. and most recently The Chubb Corp. CB (expected to close in the first quarter of 2016) has not only diversified the product mix but has also widened the company’s geographical exposure. Put together, these would lead to considerable value creation in the future.
Apart from focusing on inorganic growth, ACE Limited has made investments in various strategic initiatives that should pave way for long-term growth.
Riding on its operational strength, the company has a strong capital position and thus engages in prudent capital deployment that in turn enhances shareholders’ value. The 3.1% hike in dividend this May was the twenty-second straight annual payout hike. Notably, the company has more than doubled its quarterly dividend since 2010. ACE Limited aims a dividend payout ratio of 30% in its operating earnings. The insurer also engages in share buybacks and as such bought back $2.5 billion worth shares during the first nine months of 2015.
However, escalating expenses that are eating away margins and a persistent low interest rate environment that is weighing on investment results are headwinds to the company’s growth.
Other Stocks to Consider
Investors interested in the property and casualty insurers may also look at Cincinnati Financial Corp CINF and RLI Corp. RLI, both sporting a Zacks Rank #1 (Strong Buy).
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